Editorial: Nonprofits shouldn’t pay business enterprise tax

Since spending money is one of their primary responsibilities, legislators are always looking for something to tax. In New Hampshire, given the strictures of “The Pledge,” the best tax, from a lawmaker’s point of view, is one that already exists, since it can be raised or expanded without violating the state’s silly, de facto “no new taxes” rule. So it is, we believe, with veteran Republican Rep. David Hess’s idea to impose the state’s 0.75 percent business enterprise tax on large non-profit organizations, including its hospitals, private colleges and universities. It’s a remarkably bad idea.

New Hampshire’s nonprofit sector represents 12 percent of the economy, which “for some reason,” Hess said, is exempt from the tax. The reason, however, is simple. Tax something and you get less of it. Having more, rather than fewer, non-profit organizations carrying out charitable, educational and humanitarian activity is in the state’s interest.

The tax on the compensation paid by hospitals would come atop another tax on the supposedly tax-exempt institutions, the 5.5 percent Medicaid enhancement tax on hospital revenue. That tax, first levied under then-Gov. Judd Gregg, was not initially seen as a way to run government by taxing health care services, but a back-door way to wring revenue out of the federal government. In what came to be known as Mediscam, the state raised more than $2 billion over the years by taxing hospitals and getting federal Medicaid matching funds in an equal amount. It then kicked the original amount backed to each hospital, in effect holding them harmless. But in 2011 the state started sending less back to hospitals. They were no longer held harmless but harmed to the tune of some $250 million. That led to the loss of hundreds of hospital jobs and at least one hospital’s decision to stop seeing Medicaid patients.

Ten of the state’s largest hospitals sued over the state’s refusal to rebate a tax levied on, among other things, a nonprofit hospital’s hospice beds. That suit is still in court. Hess’s proposed new tax would further aggravate the financial problems facing many of the state’s hospitals and drive up health care costs – and insurance premiums – to fund state government.

Imposing the levy on private universities would work to increase the cost and decrease the affordability of higher education in the state famous for having the highest level of student debt in the land. It would make the ongoing effort to stem the brain drain and keep more graduates of New Hampshire colleges in the state and harm the economy.

In an interview with Monitor State House reporter Ben Leubsdorf, Hess described the business enterprise tax as essentially a levy on compensation. “When you look at the highest-paid employees in the state . . . a hefty percentage are hospital executives and college presidents,” Hess said. And he’s right. Salaries of a half-million dollars a year or more are not uncommon for university presidents and hospital CEOs. It’s easy to see why lawmakers and taxpayers get annoyed when they learn that the head of a non-profit or charity is raking it in. But levying a tax on non-profit organizations is not the way to address the issue.

Hmmm. Let’s see. If the problem is that high salaries, particularly those in the non-profit sector, are escaping taxation, there must be some way to make the people earning them pay without penalizing everyone else. In fact, we’re pretty sure Hess knows of a tax that, if instituted, would do the job.